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Politics and Economy:
Income and Inequality
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Living on Low Wages Overview

NOW has covered income and inequality in America from many perspectives — credit, debt and bankruptcy, family income volatility, income disparity and hunger insecurity. In late 2004, NOW met Penny Katick, a single mother working for minimum wage as a waitress in Nevada. Ms Katick was preparing to vote for the first time, in part because a rise in the minimum wage was on the ballot in her state. She is just one of many Americans who is making do on the low end of the wage scale. Find out more about financial insecurity in America and the ongoing debate over raising the minimum wage below.

Figures from the U.S. Census Bureau make stark reading:

  • Median household incomes are falling
  • In 2004, 45.8 million people were without health insurance coverage, up from 45.0 million people in 2003
  • The official poverty rate in 2004 was 12.7 percent or up from 12.5 percent 2003. In 2004, 37.0 million people, were in poverty, up 1.1 million from 2003. From the most recent trough in 2000, both the number and rate have risen for four consecutive years, from 31.6 million and 11.3 percent in 2000, to 37.0 million and 12.7 percent in 2004 respectively. [The federal poverty level in 2004 stands at $9,645 for individuals, $12,334 for households of two; $15,067 for three; $19,307 for four.]
Wages make up the majority of income for most American families. Americans are working more more women are working for wages and all are working more hours. On average, a middle income married couple with children added an average of 20 weeks of work per year since 1970. Still, it's increasingly hard for families to make ends meet. According to formulations of the Economic Policy Institute, drawn from Bureau of Labor Statistics figures, the purchasing power of the minimum wage has declined. A federal study found that about 25 percent of Americans and 34 percent of children experienced poverty at some point between 1987 and 1996. In addition, according to author Beth Shulman, "Low-wage work that today constitutes one out of every four jobs in the United States is expected to grow in the next decade."

Figures like these prompt calls for a raise in the minimum wage. The federal minimum wage has remained at $5.15 since 1997 ($2.13 an hour in direct wages if that amount plus the tips received equals at least the federal minimum wage). That translates to $206 a week or a little more than $10,000 for those who work a 40-hour work week. Proponents contend that raising the minimum wage will benefit most American businesses as it raises the purchasing power of low-wage workers. Opponents say that instead employers who can't afford the higher wages, will have to reduce the number of employees.

But efforts to raise the minimum wage on the federal level have floundered. In March 2005 the Senate defeated two proposals to raise the $5.15-an-hour minimum wage. A Democratic proposal argued for an increase of the minimum wage by $2.10 over the next 26 months. A Republican-backed measure suggested a smaller increase — $1.10 in two steps over 18 months and included "an option for employees to work up to 80 hours over two weeks without qualifying for overtime pay; a provision restricting the ability of states to raise the minimum wage for restaurant employees; and waiving wage and overtime rules for workers in some small businesses now covered."

The issue of raising the wage will likely be a feature in Congress in 2006. In the meantime, many states and municipalities have enacted or are trying to enact increases on their own. On November 30, 2005, the New Mexico Court of Appeals yesterday upheld Santa Fe's "living wage" law. The ruling makes permanent an increase that first went into effect in June 2004, entitling thousands of low-wage workers in Santa Fe to receive at least $8.50 an hour. This month Emeryville California enacted a local $9 minimum wage for hotel workers, and Chicago and Washington, D.C. are considering $10 minimum wages for workers at "big box" retail stores. In Penny Katick's home state of Nevada the minimum wage initiative passed, however because the initiative was in the form of an amendment to the state's constitution, voters will have to say "yes" again in 2006 for the increase to come into force. (Check on your state's minimum wage rules.) Read more about the debate over the effects of raising the wage below.

Read more about the debate below and discuss your thoughts on the topic.

Pro-Raising the Minimum WageAnti-Raising the Minimum Wage
"Some critics argue that the Earned Income Tax Credit is a better way to lift up the poor. The reason: The EITC, which gives tax dollars to the lowest-income workers, targets the poor more directly than the minimum, which also covers people such as affluent teenagers... An indexed minimum would offset that downward pressure, creating complementary policies that bring up those on the bottom to rise along with the rest of us."

- Minimum Wage: The States Get It, Aaron Bernstein, BUSINESSWEEK Online

"Focusing only on total employment hides significant negative effects for groups like teenagers (see chart). Although the last increase in the minimum wage did not reduce total employment, it did reduce employment rates, particularly for unskilled teenagers. Only the red-hot economy in 1998 and 1999 was able to mitigate the impact of the last minimum wage increase on teenagers."

- D. Mark Wilson Who is Paid the Minimum Wage and Who Would be Affected by a $1.50 per Hour Increase, The Heritage Foundation

"The minimum wage is 33% of the average hourly wage of American workers, the lowest level since 1949. In addition, the minimum wage raises the wages of low-income workers in general, not just those below the official poverty line. Many families move in and out of poverty, and near-poor families are also important beneficiaries of minimum wage increases."

- Economic Policy Institute

"'Last time I checked, America was a market economy,' writes Chet Miller, owner of Sharp Impressions, a Houston supplier of promotional merchandise. 'As for products for sale, the market does a pretty good job of establishing value and worth. Why not let the market decide what a job skill is worth? If an employer offers a wage deemed too low by the employee, that person has the right to look for employment elsewhere.'"

- The Arguments Against Raising Minimum Wage, Gwendolyn Bounds, THE WALL STREET JOURNAL

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